When an airline offers a frequent-flyer program it allows members to accumulate miles. The miles begin to obtain value to the program member despite being only a medium you can trade for free travel. The member doesn’t truly care about the miles. He cares about the benefit of accumulating those miles, free travel. The medium, in this case, frequent flyer miles, truly has no value yet still draws the concentration of the program member. “The money we earn from work is also a medium. Thus, the potential implication of research on medium is not medium; it is extra large.” Christopher Hsee, Journal of Consumer Research, June 2003 

The tenet of Medium Maximization says people often fail to fully skip over the medium (frequent flyer miles) in favor of the benefit (free travel). For example, consider the opening scene to the film Wedding Crashers. The scene concentrates on a divorcing couple in the midst of a Divorce Mediation session. They begin arguing over who should be awarded the frequent flyer miles. Frequent flyer miles and other frequent buyer or cash back rewards programs are considered by family law courts to be a community asset in California. The husband says “I earned those miles”, the wife seems to agree but believes he earned them on trips to see his -insert expletive- girlfriend. The miles are the medium to this couples’ financial decision-making process (dispute). By focusing on the medium (frequent flyer miles) rather than the benefit (free travel) of owning the medium, they have both failed to consider the decision at hand from a rational perspective. The real decision at hand is who will be awarded the right to free travel in the future not who gets the frequent flyer miles. The value of this free travel can be estimated fairly easily. Twenty-five thousand (25,000) miles might earn a one way ticket from Los Angeles to New York while the same ticket would actually cost $300. The wife lost sight of the benefit of the miles immediately when she associated the medium with the outcome in her mind, her cheating husband. She has missed the point by concentrating on the medium rather than the benefit.

The wife is very clearly upset by the situation and allows her emotions into the decision making process. I don’t blame her. The point of the illustration is to realize that economic theory tells us people will never concentrate on the medium because it has no value. The emotional turmoil of the dispute in the movie tells us humans often place a value on the medium and may ultimately make emotional decisions because of their tendency for medium maximization. Understanding Behavioral Finance can help mitigate emotion but we can never hope to completely remove it making Behavioral Economics vital to appreciating real life financial decision-making especially in Divorce Financial Planning.

Justin A. Reckers can be reached at:

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“Denial, anger, bargaining, depression and acceptance are the commonly accepted steps in the grief process, whether grieving the loss of a patriarch, mother, business, child or family structure. If a client is stuck somewhere on this cycle, financial advisors will have trouble shepherding them toward an unbiased and healthy decision-making process.”

The quote above has been excerpted from the most recent article in a series I am writing along with Robert A. Simon, Ph.D. discussing the application of Behavioral Finance to Financial Decision making processes. These articles are written specifically for the Financial Planning and Advisory community. Please click the picture below to be directed to MorningstarAdvisor.com and read the whole article.

Stay tuned for more information on upcoming articles planned for individuals, families and Family Law practitioners.   Feel free to comment on the MorningstarAdvisor.com website.

Justin A. Reckers can be reached at:

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Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

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69% of Certified Divorce Financial Analysts said they had seen clients who could not afford to get divorced because of recession-related financial problems.

When asked to assess the difference that current economic conditions have made to the number of new divorcing clients coming through their doors, 39% say that the recession has not affected the number of cases, and 25% say that the recession has increased the number of new cases they’re seeing (these numbers compare with 43% and 19% respectively the previous year.

The most common reason cited for an increase was the clients’ desire to reduce the cost of their divorce. Other common responses included:

• Economic climate is straining marriages
• People are exploring the financial feasibility of being able to divorce before they file or see an attorney
• An increase in mediated and Pro Se divorces using CDFAs as financial neutral.

The most common reason cited for the decrease was fear: fear of the economy, job loss, losing (or not being able to sell) their homes, and of not being able to make ends meet without their spouses. Other common responses included:

• People are afraid to divorce while they’re unemployed
• Clients can’t afford to divorce until the economy improves
• Not enough money to hire a financial expert
• People just can’t afford to live apart – especially if the matrimonial home is “underwater” (meaning that they owe more on the mortgage than the house is currently worth).

22% percent of respondents said that the number of clients whose matrimonial homes were “underwater” has increased dramatically over the last year. An additional 34% said that the number had increased slightly, and 24% said that the number had remained the same. Eighteen percent of respondents do not presently have clients with underwater houses, and only 2% report a decrease in the number from the same time last year.

Sixty-seven percent of respondents said that the current housing market has forced them to come up with creative solutions to property-division problems when the matrimonial home fails to sell – or would sell for less than what clients still owe on the mortgage. This number is down from 73% the year before. The most common solution is for ex-spouses to retain joint ownership and continue to live in the house (often, he moves into the basement and she lives upstairs) until the market improves, agreeing to postpone final division of assets until after the house is sold.

Fifty-eight percent of respondents said that the current economic climate has affected the type of assets their clients wish to receive as part of their divorce settlement (compared with 63% the year before). The most common request was for liquid assets only: their clients want cash rather than stocks, investments, real estate, or retirement plans. In other words, “Cash is King.”

According to the survey, Mediation and Collaborative Divorce proved to be the most cost-effective ways for clients to process the financial aspects of their divorce in 2009-2010. Many CDFAs work in two or more models, and they were able to paint a pretty clear picture of expenses incurred by their clients in each.

“These survey results are copyrighted and are used with permission from the Institute for Divorce Financial Analysts.  www.InstituteDFA.com”

Justin A. Reckers can be reached at:

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Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

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“Research shows that there are conditions under which an individual is willing and quite happy to pay $28 for a $20 bill at auction. Some have written about how we can apply Einstein’s theory of relativity to human decision-making processes. The technology now exists to help us analyze the neurocognitive effect of receiving expert financial advice.”

The quote above has been excerpted from the most recent article in a series I am writing along with Robert A. Simon, Ph.D. discussing the application of Behavioral Finance to Financial Decision making processes. These articles are written specifically for the Financial Planning and Advisory community. Please click the picture below to be directed to MorningstarAdvisor.com and read the whole article.

Stay tuned for more information on upcoming articles planned for individuals, families and Family Law practitioners.   Feel free to comment on the MorningstarAdvisor.com website.

Justin A. Reckers can be reached at:

_________________________________________________________

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

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The quote above has been excerpted from most recent article in a series I am writing along with Robert A. Simon, Ph.D. discussing the application of Behavioral Finance to Financial Decision making processes. These articles are written specifically for the Financial Planning and Advisory community. Please click the picture below to be directed to MorningstarAdvisor.com and read the whole article.

Stay tuned for more information on upcoming articles planned for individuals, families and Family Law practitioners.   Feel free to comment on the MorningstarAdvisor.com website.

Justin A. Reckers can be reached at:

_________________________________________________________

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

CONTACT US

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Immediate Access to Insurance for Uninsured Individuals with a Pre-Existing Condition.  This provision provides eligible individuals access to coverage that does not impose exclusions for pre-existing health conditions. In the past, pre-existing medical conditions, whether serious or minor, may have precluded an individual from obtaining medical insurance on the open market. Long term legal separations, delayed divorces and other creative solutions were used by negotiators in situations where an un-employed spouse had pre-existing health concerns. This reform will become effective June 30, 2010 and should provide long term solutions for your clients. Coverage under this program will continue until new exchanges are operational in 2014. The exchanges may even offer more affordable coverage than the COBRA continuation insurance many newly divorced and unemployed individuals opt for today. This new venue will enable comparison shopping for standardized health packages, facilitate enrollment and administer tax credits to make coverage affordable for all income levels.

Extending Dependent Coverage. Young adults age 19 through 29 are the largest growing age group in the country at risk of being uninsured. The growing population of un-employed or under-employed young adults has many of them landing back at home after college. Parents are increasingly making planning for the expenses of their able bodied adult children part of their divorce negotiations. Current medical policies provide dependent care for children until they are 19, or 23 if a full-time student. Purchasing catastrophic or high-deductible medical insurance for the kids has become a common risk management solution for parents to insure against major loss if their child should be in an accident or need expensive medical care. The problem remains the relatively high cost and relatively small number of options. The Patient Protection and Affordable Care Act will require any group health plan or plan in the individual market that provides dependent coverage for children to continue to make that coverage available until the child turns 26 years of age. This takes effect for plan years beginning on or after September 30, 2010 and should allow parents to more effectively arrange for sharing the costs of co-parenting their adult children.

There are many other important and far reaching provisions beyond the scope of my writing. The complete 2,409 page text is available at http://docs.house.gov/rules/hr4872/111_hr3590_engrossed.pdf.

So how are we going to pay for it? Tax increases. The upper middle class and wealthy will be footing the bill for much of the increased taxation. An increase in the hospital insurance tax rate (commonly referred to as Medicare payroll tax) and an additional tax on investment income will take effect in 2013. The Medicare payroll tax will increase from 1.45% to 2.35% and a “Medicare contribution tax” of 3.8 percent will be levied on net investment income (e.g., dividends, capital gains, rents, passive income) for taxpayers with Adjusted Gross Income greater than $200,000 ($250,000 for joint returns).

Increased access to affordable coverage should provide flexibility in divorce settings, reduce the use of risky long term planning scenarios and possibly remove expensive COBRA continuation coverage from our lexicon.  Like any significant income tax changes, those included in the reform will require changes to support guideline calculations and a base-line understanding of how those changes will affect individuals and families navigating divorce. We will learn more as provisions go into effect in the coming years.

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Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

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 The general idea is that there is a growing need for Financial Advisers experienced in divorce to help individuals and couples navigating the difficult financial decisions necessary during the division of a marital estate. I agree with the premise but have real concerns with some of the statements included.

 The Premise

The economics of divorce have changed and will continue to do so. The decision of WHO gets to keep the home has never been easy. Now it is also difficult to carry out the agreed upon plan. Deteriorating real estate markets and nonexistent financing alternatives have left divorcing couples faced with decisions family law attorneys are not experienced in advising. Constantly changing tax law has created financial concerns such as the Capital Loss Carryforward, Dependency Exemption, Alimony Recapture, Child Contingency Rules and Section 1041 governing tax free transfer of assets pursuant to divorce. Attorneys and their clients ignore these at their peril as they have real economic value and consequences. Federal Tax Law supersedes state Family Law so relying upon family code for guidance will often lead to inappropriate and costly conclusions. There are many examples of the value of Divorce Financial Planning and a Financial Adviser in divorce proceedings throughout my website.

 My Concerns

The article interviews various Financial Advisers providing Divorce Financial Planning advice in various divorce processes. There are multiple options available to a divorcing couple as elucidated in the articles and on my website. They are Litigation, Collaborative Divorce, Mediation and Do-it Yourself. No matter which process is chosen, Divorce Financial Planning is valuable to the parties and the attorneys. In Collaborative Divorce or Mediation, a Financial Adviser may work as a Neutral adviser to the family. Here in lies my concern with the article. The Reuters article puts forward “Unlike in a collaborative divorce case, a financial neutral in a mediated divorce can take either party as a client after the divorce.” I disagree.

1. Let’s look at the definition of the word NEUTRAL –“belonging to, favoring, or assisting no side in a war, dispute, contest, or controversy”.

2. The following is an excerpt from the International Academy of Collaborative Professionals (IACP) ethical standards for practitioners. These are aspirational as the IACP does not have disciplinary authority of any kind. Key areas are underlined for emphasis.

                    10.1.  A Collaborative practitioner who serves on a Collaborative case in a neutral role shall adhere to that role, and shall not engage in any continuing client relationship that would compromise the Collaborative practitioner’s neutrality. Working with either or both client(s) or with their child(ren) outside of the Collaborative process is inconsistent with that neutral role.

                  A. A Collaborative practitioner serving as a neutral financial specialist in a Collaborative case shall not have an ongoing business relationship with a Collaborative client during or after the completion of the Collaborative case, but may assist the clients in completing the tasks specifically assigned to them by the clients’ written, final agreement. Such assistance may not include the sale of financial products or other services.”

3. Divorce Mediation remains completely unregulated at this time. There is no requirement for a professional to be trained in formal course work to be a mediator. You do not have to be an attorney, financial adviser or any other discipline. There is no expectation of competence in any specific practice. There are great resources for mediation training and a few organizations that again have aspirational guidelines for training. Since there are no guidelines for training there are no guidelines for the relationship a Mediator or Neutral should have with their clients.

4. The nature of divorce with the court’s continued jurisdiction over modification of various orders requires a professional to assume their relationship continues with the family even after a judgment of divorce has been entered.

Why does the article propose that the definition differs in the context of a Collaborative Divorce versus a Mediated Divorce? The Definition of NEUTRAL remains the same in either process. I suspect it is because there are no stringent guidelines available for a Financial Advisers acting as a Neutral in a mediation setting. In the absence of guidelines we must live with our personal ethics. I believe an adviser calling themselves a Neutral during a divorce or any dispute  resolution process must adhere strictly to the definition of Neutral and must always assume their job may never be done in that Neutral role.

The Certified Financial Planner Board of Standards defines a “conflict of interest” as when “a certificant’s financial, business, property and/or personal interests, relationships or circumstances reasonably may impair his/her ability to offer objective advice, recommendations or services.” Consider the case where the “Neutral” adviser anticipates a relationship with one party post divorce and that party must make a decision to keep the house or take a cash buy out. The adviser stands to profit from the client’s decision to take cash as the adviser can manage that cash and earn a fee for doing so. If they take the home the adviser’s opportunity to manage assets is depleted.

I have had various opportunities to work with individuals and families in a Neutral role. It is common for one party to seek post divorce relationships with an adviser so integral in the difficult transition of divorce. They are always disappointed when I re-iterate that I am precluded by my ethics as a Neutral adviser from working with either party post divorce. If advisers wish to be a part of the “Growing need for advisers in out-of-court divorces”; they need to develop clear ethical boundaries for themselves. Maintaining a relationship with one party after having held yourself out as a Neutral for a couple is the definition of Conflict of Interest in my book and runs counter to the Ethical standards of a CFP®, CDFA™, or any other discipline.

Justin A. Reckers can be reached at:

_________________________________________________________

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

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Justin Reckers, Certified Financial Planner, Certified Divorce Financial Analyst and Managing Director of Pacific Divorce Management  has joined Licensed Marriage and Family Therapist, Nancy Fagan of The Divorce Help Clinic and attorney Shawn Weber of Brave, Weber and Mack to develop a monthly workshop/seminar to help Men prepare for and cope during the divorce process and thrive afterwards. Here Justin and Nancy are featured on San Diego Fox 5 Morning News speaking with Raoul Martinez about the “Walk Away Wife” trend, No-Fault Divorce in California and Divorce Financial Planning tips including Negotiating the Family Home and the “Marriage Severance Package”. Our interview highlights upcoming Men’s Divorce Seminars and Workshops we offer in San Diego.

Go to The Divorce Help Clinic website http://www.thedivorcehelpclinic.com/menonly.html to sign up for upcoming workshops.

Justin A. Reckers can be reached at:

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

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• Collect every piece of financial paperwork you can get your hands on and go to your local printing and document services business. Make two copies of everything before returning the paperwork to where you found it.
• Complete documentation will begin to build an accurate picture of the marital estate and help drive decisions where the law of diminishing returns can often drive the conclusion.

2. Prepare accurate and defensible financial statements to help prepare your attorney including:

• Schedule of Assets and Debts – also known as a Net Worth Statement
• Income and Expense Schedule
• Include as much documentation and supplemental information as possible

3. Accurate schedules are the most important financial documents during preparation stages. Complete and accurate forms will set you up for success and help you weigh your options when developing you best alternatives for settlement.

4. Missing information or documentation is one of the most common causes for delays and canceled settlement conferences. Both will cost you more money in attorney and expert fees when subpoenas, interrogatories and repeated formal requests for documents are required.

5. Keep your schedules and documentation updated during the process. This will insure accurate information is available when you are weighing your options on the courthouse steps and avoid 11^th hour document preparation when exchange of documents is required.

6. Track everything from day one including community expenses you pay, cash given to your spouse, bank statements, receipts for major purchases, etc.. Keep a record of everything for easy access. Credits and Reimbursements are important and often valuable financial tools in your negotiations.

Justin A. Reckers can be reached at:

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Epstein Credits are most commonly incurred when one party pays community debts using their spearate property income.

If you are claiming the credit. – Keep your receipts, bank statements and other records. It is common to see divorce proceedings last years and create a long trail of records. Large bills pile up quickly for financial experts if they must recreate the paper trail.

Seek professional advice if you believe you need to consider this during your divorce.

Justin A. Reckers can be reached at:

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

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